Store rentals down by 2010
By Jennifer Netherby -- Video Business,04/04/2008
APRIL 4 | In-store DVD rental revenue will account for less than half of all rental revenue by 2010 as Netflix, Blockbuster and other DVD by mail services take over a growing share of the market, according to a new Convergence Consulting Group report entitled “The Battle for the American Couch Potato: New Challenges and Opportunities in the Content Market.”
Researchers predict in-store rental revenue will account for 44% of movie/TV rentals in 2010, with mail rentals from Netflix and others accounting for 37%. Rentals through kiosks will make up 11% of all rental revenue, and online rentals will account for 7%.
That’s a dramatic shift from 2007, when 71% of rental revenue came from in-store rentals, 25% from mail rentals, 4% from kiosks and 1% from online.
“If you just watch how [the DVD by mail business] is progressing, we took a very conservative view,” Convergence president Brahm Eiley said. “We’re forecasting mail will be larger than store by 2011.”
The overall rental market will slide to $7 billion in revenue in 2010, down from $7.6 billion in 2007. However, the drop in revenue is due to falling rental pricing as people move to lower-cost mail rental plans and kiosks.
Those rental numbers don’t include video-on-demand, which Convergence believes will generate $3.5 billion in revenue in 2010, more than in-store rentals with $3.1 billion, as studios shut the release window and Comcast and other cable and satellite companies increase their VOD film inventory.
Blockbuster hadn't seen the Convergence numbers, but spokeswoman Karen Raskopf said, "Whatever direction the industry takes, Blockbuster plans to be providing customers with convenient access to media entertainment, rental and retail, in-store, by-mail, DVD vending, digital downloading kiosks and online download. We see all of this as an opportunity for future profitable growth."
Although Convergence believes that stores will face tough new competition on the rental side, the group sees less of a threat to disc sales from new market entrants.
Convergence predicts that movie download sales will account for 3% of movie sales in 2010, up just slightly from 2% in 2007.
Researchers say online movie download services face a number of hurdles, including an unfavorable revenue split with the studios and a delayed release window, while also having to convince consumers to buy a set-top box to view the downloads on their TV.
“On the low end, online is hurt by kiosks; on the loyalty end, by mail; and on convenience, they’re hurt by stores,” Eiley said. “And if you really want to watch this stuff, you’ve got to go out and buy a box.”
Because of that, Convergence believes the space only makes sense for Apple, Amazon, Microsoft and Blockbuster-owned Movielink, all of which sell related products.
Apple iTunes dominated the download market in 2007, with 80% of download sales. But the online business remains small, and Convergence believes it will stay small over the next few years as DVD remains the dominant home video format.
“Wal-Mart getting out of the business is not a failure, it’s a sign of victory” for studios and DVD retailers, Eiley said. “The universe has been preserved. It’s a win for studios and Wal-Mart, a loss for Apple.”
Convergence found that sales of TV show and movie downloads on iTunes have failed to keep up with the growing number of films and shows available. ITunes doubled the size of its TV library in 2007, but sales didn’t double. On average, iTunes sold 160,000 episodes per show, down from a rate of 200,000 episodes per show in 2006. Apple sold on average 10,000 downloads per movie in 2007, down from 13,000 the previous year.
Convergence also notes in its report that selling TV episodes directly to consumers through iTunes and other services is an “economic dead-end,” with total download revenue per show averaging that of one 30-second TV ad.
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| Submitted by: | Dave Lindberg (DaveLindb@gmail.com) 4/12/2008 8:52:26 PM PT |
| Location: | http://www.DaveLindberg.net |
| Occupation: | Marketing |
I''d be very surprised if Apple expected a doubling of its online inventory to double its sales. Remember the Long Tail. The physical costs of handling additional bytes are near zero, but the aggregate revenue that even fewer rentals generate go directly to a brighter bottom line.
There''s a lot of work to be done before TV downloads are seamlessly integrated into customers lives and living rooms, but more and more consumers are willing to pay for the solution once it''s developed.
| Submitted by: | Adrian Hickman (ahickman@tlavideo.com) 4/9/2008 11:34:26 AM PT |
| Location: | TLA Video |
| Occupation: | General Manager/ Buyer Stores Division |
Hi, Jennifer
A quick comment. When these "studies" are reported on, it would be nice to know what criteroa and interviews are used to come to these conculsions. A quick look at the CONVERGENCE CONSULTING GROUP'S website shows a list of clients that are pretty much from the New Media realm.
Knowing that, I would have to look at something like this study with real skepticism, simply because of a perception that they may be biased by the industry that is their main focus.
That doesn't mean that I dismiss it, but whenever these come up, it would be nice to know who is trrying to tell me my buisness is dead in two years. That makes it more efficient to challenge and rebutt it.
What is does mean is that, even though I strongly feel that my business will be around for a long time in the brick and mortar" world, there will always be someone gunning for us, both for our customers and for our confidence levels.
Tell Convergence "Thanks for the intelligent guesswork." Now I'll continue to work to prove them wrong
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